Are Barclays PLC Investors Facing A Permanent Loss Of Capital?

Of the UK’s big five banks, shares in Barclays (LSE: BARC) (NYSE: BCS.US) have performed the worst so far this year. The market was taken aback by its results and, moreover, unimpressed that there as yet hasn’t been any recourse. To date in 2014 the share price has fallen 13%.

Who should we be turning to for answers?

The boss

That person would be the chief executive, Antony Jenkins, who replaced Bob Diamond in 2012.

Barclays’ main source of profitability is its investment bank. Increasingly, the conversation surrounding Barclays is dominated by the political row…

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Of the UK’s big five banks, shares in Barclays(LSE: BARC) (NYSE: BCS.US) have performed the worst so far this year. The market was taken aback by its results and, moreover, unimpressed that there as yet hasn’t been any recourse. To date in 2014 the share price has fallen 13%.

Who should we be turning to for answers?

The boss

That person would be the chief executive, Antony Jenkins, who replaced Bob Diamond in 2012.

Barclays’ main source of profitability is its investment bank. Increasingly, the conversation surrounding Barclays is dominated by the political row over bonuses, of which customers and shareholders alike are becoming exasperated. It’s no longer something that can be brushed off as bad PR, with the entailing bad headlines and general rabble. At the bank’s forthcoming annual meeting investors — who, in comparison to the bank’s employees feel treated unfairly — look likely to revolt.

But if Barclays is to return to profitability — having seen profits drop by almost a third in 2013 — then the investment bank needs to be firing on all cylinders. It’s Jenkins’ job to make that happen, and although his strategy might jar, especially against previously stated goals of improving cost ratios, he’s caught in a bind.

If you’ll let me explain.

‘Unreasonable’

You have to remember that a bank is more than just its assets — such as loans and financial instruments. Like any company, Barclays is a collection of people striving to create the best possible product. Without its employees, then the bank and its assets are worthless. This is the reason why, much to the dismay of commentators, the general public and investors, that Antony Jenkins approved pay and bonuses worth up to £40m to eight of its top investment bankers.

In an interview with The Telegraph, Jenkins commented:

“I understand completely the sentiment from shareholders and broader society that it feels unreasonable, but if we are going to be a world-class investment bank then we have deal with the compensation structure as best we can.”

If you consider that most of the earnings made by FTSE 100 companies come from overseas — some 77%, according to Capital Group — then its possible to understand Jenkins’s concerns. Remuneration levels aren’t set solely in the UK, but in the US, where banks like Goldman Sachs and JP Morgan have been able to cherry pick talent. To stop this from happening, you need to match the going rate.

As a potential investor, this might be hard to reconcile, but it’s hard to deny that Barclays shares look cheap. On the other hand, if you already own shares, you might be worried about losing your capital.